Inflation and Health Care Affordability/Fiscal State of the Union

WM Health: Why Health Care is Unaffordable: The Fallout of Democrats’ Inflation on Patients and Small Businesses, March 23, 2023

In one week, the Senate Finance Committee will be holding a hearing on Pharmacy Benefit Managers and the Prescription Drug Supply Chain: Impact on Patients and Taxpayers. I recommend you send staff to watch it, either online or in person. I have attached my comments, as well as an attachment therin referenced on single payer healthcare.

Attachment: Pharmacy Benefit Managers and the Need for Single Payer

Attachment: HHS Budget, FY 2022 Video

House Budget: Fiscal State of the Union, March 29, 2023

These are largely the same as those submitted to the House Ways and Means Health Subcommittee on Why Health Care is Unaffordable: The Fallout of Democrats’ Inflation on Patients and Small Businesses. I gore the oxen of both parties in these remarks as a prelude to bipartisanship. Without it, we are wrecked - especially if the debt is defaulted on (as I detailed last week).

The national debt is the issue of the hour. The limit needs to be abolished. It was only established because previously, each bond issue was authorized by Congress. That day has long since passed. In the first attachment, we detail who owns the national debt by income class. 

The bottom 60% of households own the debt held by Social Security as beneficiaries. The top 0.1% of households hold about a third of managed fund and bond assets, with the rest of the top 10% holding half and the bottom 90% one sixth. Federal Reserve, bank and long term assets are divided in roughly half between the top 20% and the bottom 80%. 

If the debt were to be defaulted on, a great deal of the damage would be to the top 10% of households. Managed fund and bond holders in the top 1% would take the biggest hit. The debt itself is owed by income tax payers. For every dollar of income tax paid, nineteen are owed. Those who pay and those who owe are the same people: capitalists. Without the national debt, leveraging private banking, debt and investment - especially  the intrinsically worthless assets in secondary markets - is impossible. This is far above historical averages and is unsustainable. The answer to this is increased revenue. 

The other pressing issue is inflation...

Both:

...We cannot say we did not see inflation coming. All through the Pandemic, I made the following points on several occasions:

In general, the current economy is more medical furlough than recession. Increasing and adding benefits for many turns it into paid sick leave funded by government, which is entirely appropriate. The danger is that if benefits are extended for too long a period, people will desire to stay unemployed, leading to a situation where more money is chasing a decreasing supply of goods and labor. If this turns into an upward cycle of more benefits and less economy, not just stagflation, but Hyper-Stagflation is possible. 

As a nation, we were very lucky - except for the million or so people who died because the Centers for Disease Control and the World Health Organization would not admit that the virus first presents as a cold. By trying to not minimize the virus, they turned it into a killer as people believed that their cold symptoms, which went away after the first week, would go away again after the third - that these were likely seasonal allergies. This led people to wait too long and get treatment - a fatal error.

Because people got back to work and, to a great degree, weathered the virus if they had healthy immune systems, the economy started moving fairly quickly and our engineered recession went away. The last vestiges of pandemic relief, expanded Food Stamps, have just ended. Whether this causes prices to decrease or leads us into a financial panic because many people can no longer pay their rent is the issue of the day.

Not all of inflation can be left at President Biden’s feet. Pandemic aid started with President Trump - or rather with Treasury Secretary Steven Mnuchin working out a deal with Speaker Pelosi. In large part, Mr. Mnuchin had a huge incentive as he was a major landlord whose property holdings in single family rental housing were leveraged by Mortgage Backed Securities. Pandemic aid, plus assistance from the Federal Reserve in securing his bond obligations kept the economy from collapse.

For more information on how Mr. Mnuchin got us into this pickle, see See Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream by Aaron Glantz. 

Since January 2020, we have been predicting another depression, which we define as a drop in asset values below what is borrowed against them. We no longer have to project, given the falling price of valueless cryptocurrency and the realization that mortgage backed securities holding single family rental  properties are nowhere near what they are rated - and that they have been hidden in exchange traded funds. The recent bank failures are only the beginning. 

It has been (correctly) reported that Congressional action to deregulate smaller banks contributed to the crisis. The other part, which has not been reported, is that Mick Mulvaney, as acting director of the Consumer Financial Protection Authority, deregulated certain other Dodd-Frank reforms. The most obvious are those in the New York Mercantile Exchange (NYMEX) Oil Futures Market. This nefarious activity left the market vulnerable for abuse when the Russians invaded Ukraine in an act of unprovoked aggression.

It is not President Biden’s inflation after all. It is Mick Mulvaney’s. I do not blame President Trump for this. He does not have enough knowledge of economics to have done anything but egg Mick on. Mr. Mulvaney, however, should have known better.

Returning the health care costs, we do not endorse the proposals made by President Biden regarding the funding of Medicare. As we commented to the Budget Committee last week:

Taxes to support Medicare should be broad based, funded either by an employer paid subtraction VAT or a border adjustable goods and services tax (credit invoice VAT). This would allow for the repeal of the ACA-SM surtax on higher income individuals enacted as part of the Affordable Care Act. Tax increases on higher income individuals should be dedicated toward fully funding net interest, eventually reducing the national debt, funding veterans healthcare and overseas military and ocean deployments. 

Having to rely on taxing the wealthy, rather than on a bipartisan, broad-based solution. His proposal doubles down on what was bad in the original Act. Again, from last week:

...ACA subsidies are too low and are funded by taxing the wrong people (investors). Families in the Silver Plan still have problems meeting copays and paying premiums. The funding is also unfortunate. Rather than expanding Medicaid, replace it for the non-elderly with the  Public Option proposed in 2009.  The public option should also be extended to individuals who are denied coverage under pre-existing condition rules. Such rules must be revoked as the price of passing the bill. Such a trade-off is necessary for enactment of such a proposal on a bipartisan basis. 

Now that I have wished a pox on both conferences, let us move to the cause of systemic inflation. It is not what you think. Returning to last week’s testimony to the Budget Committee:

Reforming Cost of Living Adjustments for Federal Employees, Beneficiaries and Contractors to deal with inflation

Inflation is the other big economic issue of the day. As Dodd-Frank rules are being restored, the NYMEX oil trading floor is again an honest market. Prices will go down and stay down to reflect the real availability of oil and gas. This is not to say that higher interest rates were not needed, but this is only so that families, especially retirees, earn a fair return on their savings.

How the pain of inflation is borne is more important. Households making under the 90th percentile have been losing ground for almost half a century,while incomes above that amount have increased on a regular basis.

The source of inequality, aside from abandoning the 91% top marginal tax rate, is granting raises at an equal percentage rather than by an equal amount. When the 91% rate was repealed, incomes were fairly equal, so it was not an issue. 

The federal government plays an outsized role in how salaries are determined through percentage based cost of living adjustments to government workers, beneficiaries, government contractors. The government can change this with the stroke of a pen.  The private sector will follow suit with a higher minimum wage, adequate child tax credits (as described below) and paying individuals in training from ESL to community college the minimum wage to purse their studies.

From here on in, adjust for cost of living on a per dollar an hour rather than on a percentage basis (or dollars per month or week for federal beneficiaries). Calculate the dollar amount based on inflation at the median income level. No one gets more dollars an hour raise, no one gets less dollars per hour in increases. Increase the minimum wage as above and consider decreasing high end salaries paid to government employees and contractors. Even without decreases, simply equalizing raises will soon reduce inequality. Why is this necessary?

Prices chaise the median dollar. The median dollar of income is actually at the 90th percentile, rather than the 77th percentile (which is about where the median is). This strategy will reduce inflation in both the long and short terms as prices adjust to decreases in higher salaried income.. Let me repeat this - prices chase income dollars, not income earners.

Aside from rolling back high salary adjustments for senior government employees, contractors and members of Congress, what can be done to help families and small businesses deal with inflation. 

Higher minimum wages are vital, especially for tipped workers. The President’s child tax credit proposals are simply too low for those families who need them most.We would make it $1,000 per month and phase it out from the median income to the 90th percentile. 

Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare.” I advise such Senators in both parties to raise the minimum wage so that no one is having to work just to receive this credit and that the best way to distribute the credit is with wages.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. Again, no one should have to subsist mainly on their child tax payments.

This approach is superior to the prebate mechanism proposed for the Fair Tax and for the same reason. The government should not be the national paymaster for every family. 

Another note on the Fair Tax and the VAT: while the IRS does not credit the entire sales tax paid by those who themselves collect sales taxes, at least they deduct those tax payments from total income for small business owners (and we presume corporate employers as well). This subsidy is a transfer to states, however all such taxes should be credited rather than deducted. If this occurs, the Fair Tax would be a value added tax and would end incentives to cheat.

Most importantly, there are far too many people working as small businesses who are truly employees. While ramping up wage and hour enforcement will help, the better goal is to give companies tax incentives, such as the employer-paid subtraction value added tax laid out in our latest tax reform proposal. This should also be the bedrock for providing better health insurance than is available under the Affordable Care Act as currently constituted. Please see a third attachment for this plan - but take small bites and call upon me for more in-depth explanation.

Again, from last week’s Budget Committee hearing: Corporate income taxes and collection of business and farm income taxes will be replaced by the subtraction value added tax proposed in our attachment on tax reform.

Individual income tax rates proposed by the President are packaged incorrectly.They should be split between subtraction value added tax surtaxes on salaries, interest and dividends and an asset value added tax enacted to replace both the estate tax and capital gains taxes.

See our tax reform plan in the attachment for details. This plan does not close loopholes, it eliminates them. Consumption taxes proposed in our plan don’t care how cash is obtained. When it is spent, the tax obligation is between 13% and 19.25% (or more, depending on how contributions to FICA formerly paid by employers and Medicare taxes are included). 

Enacting an asset value added tax would allow the end of the inheritance tax. Inherited assets would be taxed when sold - and not until then - so that family businesses and farms would be held harmless. This would also end the need to retain preferred retirement accounts and life insurance policies designed for tax avoidance (aside from those favoring employee-ownership). 

Attachment: Tax Reform Videos included

Attachment: Debt Limit as Class Warfare Video (Budget Committee Only)